The purpose of British Columbia’s Builders Lien Act is to provide security to contractors and suppliers who work on a project by regulating when a charge may be placed on a property by those who have supplied work or goods. Many construction contracts also provide that disputes must be dealt with via arbitration, rather than the courts. When disputes on lien validity arise, which body has jurisdiction to hear and decide on this issue? What constitutes a question of law as opposed to one of fact to determine who has jurisdiction? A BC court recently considered this issue.

Background

McCallum, as owner, retained Draycor, as contractor. Draycor subcontracted Mazzei to provide electrical works and fixtures via a standard form CCDC-17. This subcontract contained a dispute resolution clause providing that either party had the option of referring the dispute to be resolved by arbitration should the need arise.

Mazzei alleged that it was owed $391,870.68 by Draycor, and registered a builders’ lien for that amount. By letter of agreement, the parties agreed to the lien being discharged on specific terms, including funds being held in trust as security, pending the resolution of the lien claim.

Mazzei then invoked the dispute resolution provisions of the subcontract to have the dispute decided by arbitration. Shortly thereafter, Draycor and McCallum brought an application seeking to have the lien declared invalid as being registered outside the time limits in the Builders Lien Act (“BLA”). Mazzei, in turn, sought a stay of this application, given the parallel arbitration proceedings.

Party Arguments

Mazzei argued that disputes falling within the terms of the arbitration agreement are to be resolved by arbitration. It further argued that even if a lien falls outside the issues to be arbitrated, the scope of the arbitration agreement encompasses actions sufficiently connected to issues in the arbitration, such that lien validity should be submitted to arbitration as well. Mazzei argued that the timing of lien registration was sufficiently connected to the issue of contract liability, which would be the central subject of the upcoming arbitration.

In contrast, Draycor and McCallum relied on section s. 42(2) of the BLA, which provides that parties cannot contract in a manner that contradicts remedies provided by the BLA. S. 25 of the BLA explicitly grants owners the remedy of applying to the court to have a lien claim cancelled if it is extinguished. Draycor and McCallum argued that the lien validity should first be determined by the court, after which, Mazzei could pursue its debt claims against Draycor under the subcontract via arbitration. To the extent the subcontract would allow Mazzei to stay the lien validity application in favour of arbitration, the subcontract would be void.

What the Court Said

The court relied on the 2011 Supreme Court of Canada decision, Seidel v TELUS Communications Inc. That case held that where there is a contest as to an arbitrator’s jurisdiction, and if that contest arises out of questions of fact or of mixed fact and law, then that question of jurisdiction is properly resolved by the arbitrator. Otherwise, where the contest over jurisdiction arises out of a question of pure law, the Court is not obligated to defer to an arbitration agreement.

In this case, the issue lien validity was quite narrow and purely legal. The issue was solely whether Mazzei’s lien was registered in time. The underlying quality of its work and its actual payment entitlement under the subcontract was not engaged. The subcontract’s specific terms are not particularly relevant, and its main purpose is to provide context. This would involve looking at the date the lien was registered, relative to a determination of the date the prime contract was completed, abandoned, or terminated.

As a result, the court concluded that the issue fell outside the jurisdiction of the subcontract’s dispute resolution provisions. The pure legal question at issue remained in the jurisdiction of the court, not the arbitrator.

Takeaways

As lien rights and contractual dispute resolution clauses are frequently engaged at the same time, this decision provides a helpful reminder of the proper analysis to determine whether a court or an arbitrator has jurisdiction. Although this case was decided in BC, and each province has different lien legislation, it is likely that the same result would be reached by an Alberta court. S. 42(2) of the BC BLA is very similar to s. 5 of the Alberta Prompt Payment and Construction Lien Act. Both provisions state that any contract terms at odds with the lien legislation are void.

Given the complexity of lien claims and arbitration generally, it is always best to consult a lawyer. Please contact Anthony Burden in Calgary, Ryan Krushelnitzky Edmonton, or any member of Field Law’s Construction Group for guidance and assistance in this area.

Link to decision: Draycor Construction Ltd. v Mazzei Electric Ltd., 2024 BCSC 1531